Ukraine War To Escalate After Obama's Visit?
Jeffrey C. Borneman | September 1, 2014
The European Union has relied on the US umbrella of Defense for so long it lacks the ability to defend itself from a very irritated Russia. Next week Obama meets with Baltic leaders and will be bearing NATO promises.
The Telegraph reports "... one US official despaired privately: "If Putin is immune to economic pain and we are not willing to use military force, then he's got us in check mate, doesn't he?"
The EU leaders are talking tough about containing Russia but they have few weapons, ready troops or eagerness to enter the Bear's Energy squeeze (discussed here). Putin is well aware of Europe's predicament and therefore knows all the bluster about NATO's Article 5 (all for one and one for all) is, so far, hollow.
Investors should know the combined rounds of economic sanctions by the EU and US against Russia have wrought havoc with Russia's economy - yet President Putin's popularity is rising right along with Inflation for staple goods.
It is also important for investors to know that the seven (plus) trillion dollars of Quantitative Easing (Monetary Policy) has failed to produce the desired level of Inflation (discussed here), leaving government its one remaining tool: Fiscal Policy. Fiscal policy is merely direct government spending (they will have their Inflation one way or another). The biggest bang for the Inflationary buck (pardon the pun) is Defense spending. But even better, the subsidizing of NATO members purchase of US Defense.
A proper perspective of DEMAND for Defense is that globally, it is intense - but measured as a percentage of GDP for many countries (especially major NATO allies) it is still small. The US 2014 Defense budget is $618 billion (or 3.8% of GDP) while Britain, "which does spend two per cent, remains without an operational aircraft carrier and Germany (which spends just 1.3 per cent of GDP but is planning further cuts) maintains an air force at almost comical levels of disrepair", according to an investigation by Der Spiegel last week, says The Telegraph.
Many other NATO member states are trying hard to increase tiny Defense budgets as discussed here while Russia is spending 4.5% GDP on Defense and China is spending 9.5%.
The Baltic States are understandably demanding an increase in both NATO weapons and assurances during Obama's upcoming trip. After all, they fear returning to either satellite-status or full absorption by Russia. Putin will be watching to see what further commitments are made but he also knows Defense spending is good for Russia.
If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.